I shared the five most common reasons why you may need to prepare a tax return for your teenager.
Here are five more reasons:

Your teenager started a business and lost money on it. He or she may wish to file a tax return to reduce their taxes in this year or future years.

A Form 1099B arrived from a broker, bank or mutual fund company because he or she sold stock or a mutual fund and had a gain on the sale. Your teenager should file a tax return and include the stock sale on a Schedule D.

Sold stock or a mutual fund and has a loss on the sale. He or she may wish to file a tax return to reduce their taxes in this year or future years.

Earned income from a job or a business and wishes to open a Roth IRA.

Your teenager received several W-2s, but did not have federal income tax withheld on all the W-2s (look at Box 2). They may not have had enough tax withheld and may owe income tax.

If any of these situations happen to you, read more about teenagers and taxes in my book Teens and Taxes. For $3.00, you’ll get accurate information that’s easy to understand..

My 18 YO made $8600.00 last year and paid $682 in Fed taxes. He would like to file his own taxes and try to recoup that money. He was 1/2 year a Sr in HS, 1/2 year college freshman last year.

If he files his own taxes, will I still be able to claim his college tuition on mine? If I claim him as a dependent and add his income will this effect our FAFSA application?

-Jennifer

Jennifer,

You must be proud of your hard-working son!

If you meet all the dependency tests, your son can still be claimed as your dependent. The support test is probably the deciding factor for you; if you provided more than half your son’s support (food, housing, clothing, medical care, etc), then he is still your dependent, no matter how much money he makes.

He should file a tax return to get a refund of the federal income tax withheld.

Your son should file his own tax return, but since he is your dependent, you can still claim the college tuition credit such as the American Opportunity Credit.
There is a place on your son’s tax return to check that he is claimed by another person as a dependent. Make sure he checks that box! I cover it in my Teens and Taxes ebook.

His earnings will affect his financial aid. The FAFSA typically assumes that one-half of a student’s earned income will be applied toward college expenses, so I hope he saved up some of that $8,600 to pay for college!

Parents, if your teenager files his or her own tax return (and they should file their own tax return; do not add their income to your return) and you still claim them as your dependent, they need to be sure to fill out their tax return properly.

(Sorry, that was a really long sentence!!!)

Here’s the point: If you claim your teenager as your dependent, then he will NOT claim himself on his own tax return.

Here’s how to do that:

Right under the name and filing status is where your teenager will NOT take his or her own exemption. On the Form 4010 it’s line 6a.

Your teenager does not check the box.

Sometimes tax software will phrase it differently, such as “check the box if someone else can claim you,” so read it carefully.
In the end, your teenager should claim zero exemptions, since you, the parent, are claiming him.

On the Form 1040 it looks like this:

Here’s what it looks like on the Form 1040EZ.

Notice how the question is phrased differently?

One the 1040EZ a teenager does check the box.

What amount should a teenager put on line 5? Do the worksheet on the back.

Hint: Most teenagers will end up putting their income from Line 1 (max of $5,950 in 2012) on Line 5, but use the worksheet on the back of the Form 1040EZ.

Confusing? You bet!!! That’s why I will always have a job as a tax preparer!

Typically, income from babysitting does not mean a teenager must file a tax return. Income from babysitting is usually too low to pay income tax (the threshold in 2012 is $5,950).

Additionally, teenage babysitters are considered household employees, not business owners, so they avoid paying self-employment tax. Neither does an employer have to pay employer taxes (Social Security and Medicare) on a teenage babysitter, if these three conditions exist:

the employee is under age 18 at any time during the year and

the work is in or around a private residence as an employee and

the employee’s main occupation is not providing house hold services. (For a teenager, their primary occupation is to be a student, not a babysitter.)

All three things must be true to be exempt from employer and self-employment taxes. See IRS Publication 926 Household Employer’s Tax Guide.

For example, when my daughter, Emily, was 16, she went to a neighbor’s house and babysat their three children several times a month and in the summer. In one year she made $1,200. She was a teenage household employee. Emily did not owe self-employment tax on her babysitting income. Since she earned less than $5,950 (in 2012), she did not owe federal income tax either.

But I filed a tax return for her even though Emily did not owe any income tax nor self-employment tax. Why? I wanted to open a Roth IRA for her and contribute up to the amount of her earned income. Babysitting income is considered earned income even though it is essentially tax free for the amounts Emily made. The tax return is a way to officially report her earned income.

Perhaps I am overly cautious. After all, the brokerage where I opened her Roth IRA did not ask for income verification. The IRS is not cross checking Roth IRA contributions with earned income (as far as we know). I wanted to create a paper trail. Since I am a CPA with a tax preparation practice, my daughter’s 1040 was easy to prepare. I was careful to mark her earned income from babysitting as household income. The IRS instructs household employees (babysitters, lawn mowers, maids, etc) to write “HSH” on the line where wages are reported. My tax software took care of this when I checked a box for household employees.

Consider filing a tax return for your teenager to report her babysitting income and then open a Roth IRA for her. My hope is that someday Emily will cash in her Roth for a down payment on a house (you can use a Roth IRA for your first home purchase and avoid the 10% early withdrawal) and she will fondly remember her babysitting days. Maybe she will consider her mom fondly, too!

Some high schools are teaching students about taxes, but many teens are still very new to the topic, says Carol Topp, a Cincinnati accountant who is also the founder of TeensAndTaxes.com. “I help teens understand taxes,” she says, including introducing them to related terms like IRS, which stands for Internal Revenue , the U.S. government agency responsible for tax collection and tax law enforcement. “The IRS’s website “Understanding Taxes” (see Related Links) also has several great simulations to explain federal income tax to a teenager.”

Topp warns young workers about job-related pay situations that seem to be sweet deals, but can ultimately cause them problems. “Be careful about a boss who tells you he or she will pay you in cash and ‘off the books,’” says Topp, referring to some businesses that don’t report their workers’ incomes to the government. “They may tell you this is a way for you to save on taxes, but [if the IRS] finds out, you could have to pay back any taxes that are due, along with stiff fines and penalties.”

Taxes are unavoidable — if you are earning income, you must inevitably share it with the government. “The IRS takes unreported income very seriously,” says Topp. “It assesses interest on the tax owed every month it is late. They may also add on a 20% penalty for failure to file a tax return. If the IRS suspects fraud, then they can penalize you up to 75% of the tax owed. [Teenagers should] stay away from unscrupulous bosses. If they will lie, cheat and steal from Uncle Sam, they will lie, cheat and steal from their employees, as well.”

My son is 17 and just started working part time. I will be claiming him on my taxes since he is still in high school and totally dependent on me for food, lodging etc. Do I have to claim his income on my taxes? His first check he was told to do his own taxes on it. Until he is on payroll next paycheck. He made $90.00 How do we claim taxes on that? Just this one time? He will be working one day a week, on rare occasions he might work 2-3 days but not likely. Please let me know. I am a single mom and need help with this.

Thank you,

Linda

Linda,
You should not claim his income on your tax return. It is his earned income, not yours.
He will get a W-2 next January and should file his own tax return based on the W-2 information.
Make sure he checks the box on the Form 1040EZ to claim that he is a dependent on another return (i.e. yours).

His employer should withhold the required Social Security & Medicare taxes. The employer may also withhold federal and state income taxes (if your son filled out a W-4 and requested federal income tax withholding), or perhaps the employer will not withhold any income tax if your son’s income is too low.

I hope that helps.

I spell all this and more out in clear English in my ebook, Teens and Taxes.
For $3.00, you’ll get accurate information that’s easy to understand..